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Chapter One

An Overview of Marketing and Marketing


Management
1.1. Marketing and Its Core Concepts

Marketing is meeting customers needs and wants profitably. Marketing is the


economic process by which goods and services are exchanged between the
producer and the consumer and their values determined in terms of money
prices. All of us engage in marketing in one or another way. When we are
searching job we are marketing ourselves, when we are trying to convince
customers to buy our products and services, we are marketing.

Marketing is so basic that it cannot be considered a separate function. It is really


the whole business seen from the point of view of the final result, i.e., from the
point of view of the customer. Marketing is a viewpoint, which looks at the entire
business process as a highly integrated effort to discover, create, arouse and
satisfy consumer needs.

Many people think that marketing and selling mean the same thing. Others think
that marketing is the same as selling and advertising, still others have a notion
that marketing has got something to do with making products available in the
stores, arranging displays and maintaining inventories of products for future
sales. Actually marketing includes all these activities and many more. Marketing
is a key function of management. It brings success to business organization. A
business organization performs two key functions producing goods and services
and making them available to potential customers for use. An organization
business success largely depends on how efficiently the products and services are
delivered to customers and how differently do the customers perceive the
difference in delivery in comparison to the competitors. This is true of all firms.

Definition of Marketing

Marketing can be defined as the performance of business activities that


directs the flow of goods and services from producer to consumers or final users.
It is a process of transacting goods and services form the producer to
consumers.

According to William J. Stanton, Marketing is a system of business activities


designed to plan, price, promote and distribute want satisfying goods and
services to present and potential customers.

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The Chartered Institute of Marketing defines Marketing as: Marketing is the
management process for indentifying, anticipating & satisfying customer
requirements profitably.

According to Philip Kotler, Marketing is a Social and Managerial process


by which individuals and groups obtain what they need and want
through creating, offering, and exchanging products of value with
others.

Core concepts of Marketing

Marketing has been defined in various ways. The definition that serves our
purpose best is that, Marketing is a Social and Managerial process by
which individuals and groups obtain what they need and want through
creating, offering, and exchanging products of value with others.

This definition of marketing rests on the following core concepts: needs, wants,
and demands; products (goods, services, and ideas); value, cost and
satisfaction, exchange and transactions; markets, and marketers.

Needs The most basic concept underlying marketing is that of human needs.
Marketing starts with human needs and wants. A human need is a state of felt
deprivation of some basic satisfaction; people require food, clothing, shelter,
safety, belonging, and esteem. These needs are not created by society or by
marketers. They exist in the very texture of human biology and the human
condition.

Wants Wants are desires for specific satisfiers of needs. Wants are shaped by
society, culture and individual personality. In different society, wants can be
satisfied in different ways. For e.g. an Ethiopian needs food and wants "Injera" &
"wet", and an American needs food and wants hamburger. Although people's
needs are few, their wants are many. Human wants are continually shaped and
reshaped by social forces and institutions, including churches, schools, families,
and business corporations.

Demands are human wants for specific products that are backed by an ability
and willingness to buy them. Wants become demands when supported by
purchasing power. Many people want to have personal computer; only a few are
able and willing to buy. Companies must therefore measure not only how many
would want a product but more importantly would actually be willing and able to
buy it.

Product (Goods, Services, and Ideas): People satisfy their needs and wants
with products. A product is anything that can be offered to satisfy a need or want.

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It can be physical goods, services, ideas or a combination of physical product
along with services. For example, a computer manufacturer is supplying goods
(computer, monitor, and printer), services (delivery, installation, training,
maintenance and repair) and an idea (computational power).

Value and satisfaction: Consumers usually face a broad array of products and
services that might satisfy a given need. Hence, consumers make buying choices
based on their perceptions of the value that various products and services deliver.
Customer value is the difference between the value of customer gains from
owning and using a product and the costs of obtaining the product. Customer
Satisfaction depends on a products perceived performance in delivering value
relative to buyer expectations. If a product's performance falls short of the
customer's expectations, the buyer is dissatisfied. If performance matches
expectations, the buyer is satisfied. If performance exceeds expectations, the
buyer is delighted. Outstanding marketing companies do out of their way to keep
their customers satisfied because satisfied customers make repeat purchases,
and they tell others about their experience which obviously provides the firm with
competitive advantage (good word of mouth communication), otherwise, if they
are not satisfied, customers will not only be refrained from buying a companys
products but also they are likely to talk negatively about the firm to the very
prospective customers who may possibly purchase the companys products (bad
word of mouth communication). Some companies even aim to delight customers
by promising only what they can deliver, then delivering more than they
promised.

Exchange: Earlier when we defined marketing we said that it involves exchange


of products from one party to the other party to satisfy need. Hence, we can say
that marketing occurs when people decide to satisfy needs and wants through
exchange. Exchange is the act of obtaining a desired product from someone by
offering something in return. It is only one of the ways that people can obtain
what they need. A person may get what he needs by begging others, hunting,
robbing etc. As a means of satisfying needs, exchange has much in its favor.
People do not have to prey on others or depend on donations, nor do they must
possess every necessity for themselves. They can concentrate on making things
that they are good at making and trading them for needed items made by others.
Thus, exchange allows a society to produce much more than it would with any
alternative system. Exchange must be seen as a process rather than as an event.
Two parties are engaged in exchange if they are negotiating and moving toward
an agreement. When an agreement is reached, we say that a transaction takes
place. A transaction consists of a trade off values between two parties.

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In conjunction to exchange, the marketer should be able to offer something
(product) valuable to the customer so that they will be initiated to make the
exchange. Generally transaction marketing is a means by which the so-called
marketer and prospect (customer) exchange values to each other, hence with this
relationship in between the marketer and the customer is to be created. Here, the
relationship might turn out to be for short-term transaction (relationship that lasts
with the completion of the exchange process) or long-term transaction
(relationship that continues after the transaction is completed.). Obviously the
relationship that a marketer should strive to build should be long-term relation
with customers by promising and consistently delivering high quality products,
good service, and fair prices then profit will be gained from customers on long
term basis from repeated purchases.

Markets: The concept of exchange leads to the concept of a market. A market


consists of all the potential and actual customers sharing a particular need or
want who might be willing and able to engage in exchange to satisfy that need or
want. Thus the size of the market depends on the number of people who exhibit
the need or want, have resources that interest others, and are willing and able to
offer these resources in exchange for what they want. Here, unlike the Economics
approach that considers market as a collection of buyers and sellers, we shall
consider market as a collection of buyers only and the sellers are considered as
industry.

Marketer: The concept of markets abounds us to the concept of marketing as


marketing means simply human activity that takes place in relation to markets to
make an exchange of values among individuals. Simply we can say that
marketing means working with markets to actualize potential exchanges for the
purpose of satisfying human needs and wants. If one of the two parties involved is
more actively seeking an exchange than the other party, obviously it should make
some efforts to make the other party interested in the exchange and hence, this
party is referred to as marketer. This means marketer is a party that seeks a
resource from the other party and in return willing to offer something valuable to
the other party and the party with whom the marketer needs to make exchange is
known as prospect. In the event that both the parties actively seek an exchange,
we say that both of them are marketers and call the situation as reciprocal
marketing.

Marketing Management

Earlier we said that marketing means managing markets to bring about exchange
and relationships for the purpose of creating value and satisfying needs and
wants. Thus, we return to the definition of marketing as a social and managerial

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process by which individuals and groups obtain what they need and want through
creating, offering, and exchanging products of value with others.

According to American Marketing Association, marketing management is


defined as the process of planning and executing the conception, pricing,
promotion, and distribution of ideas, goods and services to create exchange that
satisfies individual and organizational goals.

This definition recognizes that marketing management is a process involving


analysis, planning, implementation, and control; that it covers goods, services
and ideas' that rests on the notion of exchange: and that the goal is to produce
satisfaction for the parties involved.

In light with this, marketing manager is the one who is responsible for all the
activities related to the aforementioned aspects and there by enhances the
demand (acceptability) of the companys products in the market. That is why
some times marketing management is considered as demand management. At
any point in time, there may be no demand, adequate demand, irregular demand
or too much demand and marketing management must find ways to deal with
these different demand states. Hence, marketing management has the task of
influencing the level, timing, and composition of demand in a way that will help
the organization achieve its objectives by doing the activities involved in
marketing properly.

Table 1-1 distinguishes eight different states of demand and the


corresponding tasks facing marketing managers.
Negative A market is in a state of negative demand if a major part of the
demand market dislikes the product and may even pay a price to avoid it.
The marketing task is to analyze why the market dislikes the
product and then try to change the attitude of customers. This kind
of marketing strategy is referred to as Conversion marketing as it
involve changing attitude.
No Target consumer may be unaware of or uninterested in the
demand product. Thus. Farmers may not be interested in a new farming
method, and college students may not be interested in foreign
language courses. The marketing task is to find ways to connect
the benefits of the product with the person's natural needs and
interests. This kind of marketing is called Simulative marketing
Latent Many consumers may share a strong need that cannot be satisfied
demand by and existing product. There is a strong latent demand for

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harmless cigarettes, safer neighborhoods, and more fuel-efficient
cars. The marketing task is to measure the size of the potential
market and develop effective goods and services that would satisfy
the demand and this strategy is called developmental marketing
Declining Every organization, sooner or later, faces declining demand for one
demand or more of its products, Churches have seen their memberships
decline, and private colleges have seen their applications fall. The
marketer must analyze the causes of market decline and
determine whether demand can be re stimulated by finding new
target markets, changing the products features, or developing
more effective communication. The marketing task is to reverse
the declining demand through creative remarking strategy of the
product.
Irregular Many organizations face demand that varies on a seasonal, daily,
demand or even hourly basis, causing problems of idle or overworked
capacity. In mass transit much of the equipment is idle during off-
peak hours and insufficient during peak travel hours. Museums are
under visited on weekdays and overcrowded on weekends. The
marketing task, called synchro-marketing, is to find ways to alter
the same pattern of demand through flexible pricing, promotion,
and other incentives.
Full Organizations face full demand when they are pleased with their
demand volume of business. The marketing task is to maintain the current
level of demand in the face of changing consumer preferences and
increasing competition. The organization must maintain or improve
its quality and continually measure consumer satisfaction to make
sure it is doing a good job through the so called maintenance
marketing
Over full Some organizations face a demand level that is higher than they
demand can or want to handle. The marketing task, called demarcating,
requires finding ways to reduce the demand temporarily or
permanently. General demarketing seeks to discourage overall
demand and consists of such steps as raising prices and reducing
promotion and service.
Unwholes Unwholesome products will attract organize effects to discourage
ome their consumption. The marketing ask is to find out ways by which
demand the company can cope up with such actions. The marketing
strategy is called counter marketing

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1.2. Marketing Management Philosophies

1. The Production Concept

The production concept holds that consumers will favor products that are
available and highly affordable. Therefore, management should focus on
improving production and distribution efficiency. This concept is one of the
oldest orientations that guide sellers.

The production concept is still a useful philosophy in two types of situations.


The first occurs when the demand for a product exceeds the supply. Here
consumers are more interested in obtaining the product than in its fine points
(features), and suppliers taking this advantage will concentrate on finding
ways to increase production and distribution. The second situation occurs
when the products cost is too high and has to be decreased to expand the
market. Texas Instruments is one of the leading companies that use the
production concept with philosophy of GET-OUT-PRODUCTION, CUT THE
PRICE. Accordingly, TI puts all of its efforts in building production volume and
improving technology in order to bring down costs .It uses its lower costs to cut
prices and attract more consumers and hence expand the market size.

Although useful in some situations, the production concept can lead to


marketing their own operations and losing sight of the real objective
satisfying customer needs and building customer relationships.

2. The Product Concept:

The product concept holds that consumers will favor those products that offer
the most quality, performance or innovative features. Managers in these
organizations focus their energy on making superior products and improving
them over time. They assume that buyers admire well-made products and can
appraise product quality and performance. However, these managers are
sometimes caught up in a love affair with their product and do not realize what
the market needs.

Product oriented companys often design their products with little or no


customer input. They trust that their engineers can design exceptional
products. Very often they will not even examine competitor's products. Even,
whatever, quality product is produced without considering the consumers
needs, there will be no demand for the product in market. Consumers place
orders to purchase a product because there is certain problem with them. The
solution to the problem is the product. The consumers buy the product only
when there is a problem and when they wish a solution from the product.
Otherwise, no need of buying the product even if the product is quality and
provides the best performance for some other purpose.

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3. The Selling Concept

The selling concept holds that consumers and businesses will not buy enough
of the firms products unless it undertakes a large-scale selling and promotion
effort. The concept is typically practiced with unsought goods goods the
consumer does not know about or knows about but does not normally think of
buying, such as insurance or blood donations. These industries must be good
at tracking down prospects and selling them on product benefits. Most firms
practice the selling concept when whom they have overcapacity. Their aim is
to sell what they make rather than make what the market wants. Moreover,
prospects are bombarded with TV commercials, newspaper advertisements,
direct mail and sales calls. At every turn, someone is trying to sell something.
As a result, the public often identifies marketing with hard selling and
advertising.

Nevertheless, marketing based on hard selling carries high risks. It assumes


that customers who are coaxed into buying a product will like it, and even if
they do not like it, they will not bad-mouth it or complain to consumer
organizations and will forget their disappointment and buy it again. These are
indefensible assumptions because one study showed that dissatisfied
customers may bad-mouth the product to 10 or more acquaintances; bad news
travels fast.

4. The marketing concept

The marketing concept holds that achieving organizational goals depends on


knowing the needs and wants of target markets and delivering the desired
satisfactions better than competitors do. Under the marketing concept,
customer focus and value are the paths to sales and profits.
Instead of a product-centered make and sell philosophy, the marketing
concept is a customer-centered sense and respond philosophy. It views
marketing not as hunting, but as gardening, The job is not to find the right
customers for your product, but to find the right products for your customers.
As stated by famous direct marketer Lester Wunderman, The chant of the
Industrial Revolution was that of the manufacturer who said, This is what I
make, wont you please buy it. The call of the Information Age is the consumer
asking, This is what I want, wont you please make it.
The selling concept takes an inside-out perspective. It starts with the factory,
focuses on the companys existing products, and calls for heavy selling and
promotion to obtain profitable sales. It focuses primarily on customer conquest

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getting short-term sales with little concern about who buys or why. In
contrast, the marketing concept takes an outside-in perspective. The
marketing concept starts with a well-defined market, focuses on customer
needs, and integrates all the marketing activities that affect customers. In
turn, it yields profits by creating lasting relationships with the right customers
based on customer value and satisfaction.
Table: Marketing concept compared with the selling concept

Starting Focus Means Ends


point
Selling Factory Existing Selling and Profit through sales
concept products promoting volume
Marketing Market Customer Integrated Profit through
concept needs marketing Sales volume&
customer
satisfaction

5. The Societal Marketing Concept

The Societal marketing concept questions whether the pure marketing concept
overlooks possible conflicts between consumer short-run wants and consumer
long-run welfare. Is a firm that satisfies the immediate needs and wants of
target markets always doing whats best for consumers in the long run? A
socially responsible company must take into account the long-run consumer
and societal welfare. The drawback of marketing concept is that it ignores the
long-run societal welfare and focuses only on the short-run benefits. For
example, a product, which gives short-run consumer satisfaction, may have
adverse effects in the long- run. Cigarette factories and automobile companies
which causes environmental problem are good examples for this. It has,
therefore, been felt that the marketing concept be revised incorporating the
long-run societal welfare. The societal marketing concept holds that marketing
strategy should deliver value to customers in a way that maintains or improves
both the consumers and the societys well-being.

1.3. Importance of Marketing


A consumer may pay more for an item just because of marketing, but without
marketing he may not be purchasing the item at all. Marketing has incredible
benefits and our economy would collapse without it. Marketing employ many
people; it increases competition, and it leads to better products. Marketing is an
essential part of the capitalist society.

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Marketing employs many people, directly and indirectly. Not only does it employ
the people who make advertisements and get the word out there, but it employs
many people indirectly. Advertisements and sponsorships pay for many athletes
salaries. Advertisements help pay for newspaper, television shows, internet
websites, and many other items. The sustainability of peoples jobs is like the
food chain, if one small, but important, item is taken out then everything and
everyone is affected. If marketing is to cease its existence many people would
lose their jobs, which in turn causes them to lose their buying power, which
causes less items to be sold, which causes people to be laid off and then the cycle
gets worse. A product may be cheaper without marketing, but few people would
be able to buy it because many people would be unemployed.
Marketing is also important as it allows competition. Competition is a crucial part
of our economy, it helps keep prices fair and keep businesses on the cutting
edge. Marketing helps inform the public about different companies version of the
same basic product. Without marketing, only the company that is well known will
get business, while the other companies don't stand a chance. Big corporations
got where they are today by effectively marketing their products, without any
marketing these businesses never would have expanded so much. The negative
effects of one company dominating the business is that they can set any price
and sell any quality product they chose. If there are people to compete with, the
business must keep its prices low enough and its quality high enough in order to
prevent its competition from getting its customers. Marketing facilitates the
competition that is so important to our society.
Finally, marketing is beneficial because it encourages the invention of new
products. Creating a new product is incredibly risky; a lot of time and money go
into the project. In order to break even the inventor must sell a considerable
number of his products. Unfortunately, this would be virtually impossible in a
marketing-free society. Advertisements and promotions help get the word out
about a new product. Without marketing very few people would ever hear about
the new product; therefore, very few people would buy it. Getting a new product
to sell without any marketing is too huge of a risk for most business men. This
large risk would lead to a stagnation in the creation of new items and severely
limit our ability to compete with other nations.
Marketing is essential to our economy and many problems would be encountered
if we chose to get rid of it. Without marketing there wouldn't be a market to buy
and there won't be innovative products to sell. The lack of money being spent and
received will promptly lead to deflation and a disintegration of society as we know
it.

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1.4. Scope of Marketing:

It is seen as the task of creating, promoting & delivering goods & services to
consumers & businesses. Marketers are skilled in stimulating demand for
companys products; they are responsible for demand management. Marketing
managers seek to influent the level, timing & composition of demand to meet the
organizations objectives. Marketing people are involved in marketing 10 types of
entities;

Goods Events Organizati Informatio


Services Persons ons n
Experience Places Ideas
s Properties

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1.5. The goals of marketing System

Marketing is not a onetime activity it is a continuous process and affects


different parties with different interests such as, customers, suppliers, and
the public etc. Most of the time the interest of these different parties conflict
each other

The marketing system generally has four goals.

1. Maximizing consumption- marketing stimulates maximum demand.


Maximum consumption inter maximize production, employment and wealth.
2. Maximizing Satisfaction-Owning one product gives sense when it
maximized satisfaction to customers. Marketing systems maximize
satisfaction by creating and providing quality products --variety products
etc.
3. Maximizing choicesmarketing system provides varieties. As a result the
consumer will find products that fit to their exact test.
4. Maximizing life qualitythe participation of marketing system in
environmental protection maximize the quality of life of consumer. As a result
of this the life style consumers leads to quality of life achieved.
CHAPTER TWO
MARKETING ENVIRONMENTS

2.1. Definition of Marketing Environment

Marketing environment refers to the external actors and forces that affect
the companys ability to develop and maintain successful transactions and
relationships with its target customers.
Marketing does not occur in a vacuum. The marketing environment consists
of external forces that directly and/or indirectly impact the organization.
Changes in the environment create opportunities and threats for the
organizations. To track these external forces a company uses environmental
scanning. Continual monitoring of what is going on. Environmental scanning
collects information about external forces. It is conducted through the
Marketing Information System.

Environmental analysis determines environmental changes and predicts


future changes in the environment the marketing manager should be able to
determine possible threats and opportunities from the changing
environment.
2.2. Internal and External Elements of Marketing
Environments
Businesses marketing environment is classified into two broad categories.
The first is internal environment. The second is external environment.

Internal environment

Internal environment refers to factors essentially emanated from the


organizations own territory and thus a company can have full control over
such factors. For e.g. a company can exercise control over its resources,
activities of different departments such as marketing, production, finance
etc. For e.g. suppose that a company is contemplating of adding additional
product, before rushing to decision, the company should determine whether
existing production facilities and expertise can be used or not, if there are
sufficient financial rssource, etc. Generally, internal environment is
abounded by the companys resources, activities etc. So, this environment is
the basic source of the organizations strength and weakness. For instance,
workforce of a given company could be more efficient than that of the other
company. In this case, the companys workforce is acting as a source of
strength for the company. On the other hand, a company may operate with
old machineries and production techniques that makes it lag behind its
competitors in producing attractive products to customers. (source of
weakness).

External Environment

External environment refers to the actors and forces outside of the


company that affect the organizations ability to develop and maintain
successful relationship with its target market. As these factors are stem
from the external forces, they may provide the organization with immense
opportunities that may pave a way for better success or threats that may
endanger the organizations existence. Hence, an organization should
constantly scan the different opportunities or threats being shaped by
external environment and in this regard the marketers are the most
responsible for scanning the tendency of such actors as they are
responsible for dealing with the organizations market. This eventually
enables them to revise and adapt marketing strategies to meet new
challenges and opportunities in the market place. This environmental
scanning involves three basic steps: - gathering information about a
companys external environment, analyzing it and forecasting the impact of
whatever trends the analysis suggests.

This environmental level can be done at two levels as there are two
levels of external factors i.e. at macro level and at micro level.

Macro level environmental forces: these are factors springing


from demographic, economic, political, cultural, physical and technological
forces. They are said macro because they affect all the companies
operating in a given market. As they are overall factors and external, they
are largely uncontrollable by a given company. But this by no means that a
companys sucess depend on a mere chance rather companies should
systematically asses these forces and shape their activities in light with the
environments trend. Apart from this, all these forces are inter related to
eachother. Hence, a change in one of these factors is likely to cause a
change in one or more of the others. Additionally, all they are dynamic in
nature, that is, they are subject to change at an alarmic rate. Now, lets
have a look at of them one by one in detail.

Demographic environment: demography is the study of human


population in terms of size, density, location, age, gender, race, occupation
etc. This environment is of major concern to marketers because it
essentially involves people and people constitute markets. In the first place,
the explossive growth of population has great implication for companies.
Primarly population growth results in the increase in human needs that
must be fullfilled, hence we can think of it in terms of the opportunity it
may have, but it does not mean growing market unless, otherwise the
growth of population is backed up by sufficient purchasing power. On the
other hand, if the population growth presses too hard against the available
food supply and resources, costs will shoot up and hence profit marigins will
be depressed.In addition to this, national demographic factors which vary
from country to country, also have significant impact on marketing. For e.g.
in one country the number of youngesters may be far greater than that of
seniors, this may tell to the marketers what possible behaviors are
dominant in the market, which group represents the most influence etc.
Likewise, in a country, where the proportion of litrate is so small,
advertising through megazines may not be fruitfull as it doesnot make the
message reach to the maximum number of customers. Similarly, the
household pattern composition may also have implication. For e.g.
traditionally, household consists of husband, wive and children. No matter
how, we can have a lot other kind of households such as only mother and
children, father and children and only wife and husband (which is being
accustomed recently). Each of these groups may represent different kind of
market segments as each group may have different buying behavior based
on the selected characteristic. Generally, marketers should look into all
these aspects on continous basis to learn if any of these demographic
factors are changing in such a way that they are capable enough to pose
threats or create opportunities to the organization.

Economic environment: people alone do not represent markets.


They must have the ability and willingness to buy. Individuals purchasing
power is a function of different interacting forces in the so called economic
environment. When we say economic environment, we are referring to
factors that directly affect customers purchasing and spending pattern.
Among the factors affecting customers purchasing and spending pattern,
level of the economy and income distribution are the most important. As far
as the level of economy concerns, some countries have subsistent
economy:- they consume most of their own agricultural and industrial out
put. Hence, such economies represent a less attractive opportunity. At the
other extrem are industrial economies, which constitute rich markets for
many goods and services. Apart from this, the income distribution in a
country may have a lot with customers purchasing power and spending
pattern. Suppose that in a given country, much of the income goes to a
verry small part of the population leaving the mass with a very insignificant
portion of the income. This obviously tells that much of the purchasing
power is confined in the hands of fews and hence, major part of the society
does not represent attractive market as it has limited purchasing power.

The other force, in this regard, is the over all situation of the
economy: booming and depression. An economy is said to be booming if
the economic situation of a country go on improving due to the additional
employment opportunity in an economy, additional income, more
investment etc. Contrary to this, an economy is said to be on depression if
the economical situation in a country keeps on aggravating from time to
time such as increased unemployment, decrease in investment, decrease in
income etc. Both these two kinds of situations have their own impact on
the purchasing power and psychology of individuals. In a booming
economy, individuals income is improving. This eventually results in higher
purchasing power. Apart from this, in such economies, individuals will have
the confidence to spend what they have now thinking that they will have no
problem in terms of secured income in the future. Hence, booming
economy represents additional opportunity. Unlike this, depression has
negative impact on customers. In the first place, due to the many negative
factors such as unemployment, decrease in investment etc, individuals
income will go on decling and this in turn result in the shrink of purchasing
power. Additionally, individuals will have no confidence to sacrifice their
current resource for their current need thinking that the future is more
agravated than it is now. Hence, this represents a threat.

Apart from all these, the so called inflation and deflation are the other
important forces. Inflation is a rise in the prices of goods and services.
Hence the purchasing power of a currency declines.( when prices rise at a
faster rate than personal income, consumers buying power declines). This
as well affect consumers psychology and purchasing power and there by
marketing program of a company. For e.g. high inflation obviously results in
a decrease consumption as it makes purchasing power decline. Likewise, it
may psychologically force consumers to overspend today for fear that
prices will be higher tomorrow. Apart from this, sever inflation is a real
challenge for a company as it make managing prices of final products and
inputs difficult. In the same way, extereme deflation (when the purchasing
power of currency raises at an alarmic rate : oppossite of deflation) may
have implication to organizations in different ways.In particular, it is very
difficult for firms to raise prices because of consumer resistance. Hence,
their only option will be to concentrate on as to how cost of products can be
decreased, otherwise, profit will evaporate.
In addition to all these factors, consumers expenditures are highly
affected by savings, debt and credit availability and interest rate. Hence,
marketers must pay careful attention to major changes in all these factors.

Technological environment: it is one of the most dramatic force


shaping peoples lives. It has a tremendous impact on life-styles,
consumption patterns and economic well being. You can think of the many
technological breakthroughs that are expanding our horizon as we progress
into the future. It is realy hard to grasp each and every aspect in this
regard. Technology can affect companies in different ways:

By starting new industries such as computer, robot etc


By radically altering or virtually destroying existing industries as it paves the
way for improved products, innovative products etc. E.g. emergence of
television over radios, computers on type writer machine industries etc.
Apart from this, technology has affected marketing activities
extensively. The breakthrough in communication now permite people and
organizations to transact from almost any location at any time of the day.

We should also keep in mind that technology is a mixed blessing in


some ways. A new technology may improve our life in one way while
creates environmental and societal challenges and problems on the other.
E.g. automobile industry has made life great but blamed for polluting the
environment. And, in fact, technology is expected to solve some of the
problems for which it is being criticized. E.g. air pollution through
environmentally adaptive products.

Socio-cultural environment: it is made up of institutions and other


forces that affect a societys basic values, perceptions, preferences and
behaviors. The society, in which people live, shapes their basic beliefes,
values and norms. They absorb a world view that defines their relationship
to themselves, to others, to nature etc. People in every society hold many
core beliefs and values that tend to exist for a long. For e.g. many
Ethiopians believe in patriotism, in getting married, in giving to the poor,
not eating pork etc. These are cultures that passed down from parents to
children and of course are being reinforced by different institutions such as
churches, businesss, government etc. Obviously if there are cultures that
work against a companys marketing activities, the company will be at the
odd but if the culture commonsurates with the companys marketing
activities, it will be verry conducive. Hence, companies need to assess if
there are any culture operating against or with the companys marketing
activities and there by should devise ways as to how they can cope up with
the challenges being pose by that culture or as to how they can make the
best use of the opportunity. In addition to this, marketers should
continously look if there are any cultural shifts and if there, whether they
are adaptive (conducive) to the organization or not. As we all know, culture
is not something that standstill always as it is. Rather it is subject to change
owing to various reasons for e.g. in Ethiopian culture, it was housewife who
is responsible for dealing with the many things involved in a family such as
taking care of child, homemaking etc. But as time passed, it came to be
evidents that this culture is changing and hence to day specially in urban
areas the role of a husband and wife is deviating from its traditional
position. This eventaully may have implication on traditional buying pattern
of households. Additional, children are being given more attention in terms
of their interest today than that of what traditionally accustomed before.
Likewise, in urban areas an increasing number of femels are becomming
office workers and such women are seeking for better balance between
work and familiy. This is essentially changing their attitude towards
shopping etc. In such a way, we can think of the differnt kind of changes
happenning to our culture begining from changing the existing upto the
creation of new cultures. Generally, in such constantly changing cultures,
companies should respond on timely basis as the culture changes
otherwise their activities will be obsolated with the obsolated culture or the
cultural changes may endanger their sucess in one way or another or they
may over look the new opportunities coming along with cultural changes
etc.

Natural Environment: it refers to the physical environment with in


which the company operates. It involves natural resources that are needed
as an input by companies or that are affected by activities of companies.
The change in this environment may have greater implication on the
activity of marketers.
In the first place, this environment is the source of different kind of
resources the company may need. In this regard, the first kind of resources
are what we call infinite resources such as water and air but today pollusion
of such resources has become a major issue and challenge for companies.
Likewise, the so called finite but renewable (recoverables) such as food,
forest etc should also be exploited in economical and reasonable manner
that they can be recovered otherwise if they are used extremly, it will be
diffiicult to recover them back and this as we know will have impact on
companies in different ways begining from degradation of environment up
to shortage of resources. In the same way, the so called finite but non
renewable such as petroleum, coal and various minerals pose a verry
greate challenge for companies. Firms making products that require such
materials as an input will face large cost increase, even if the materials
remain available .

Apart from all these, the activities of companies may cause problems
to the environment such as pollution. Hence, the government and the
society at large may make movements against such companies for the
dangers they are causing to the environment. This in turn may compell
companies to put their large sum of money to take care the physical
environment and further it may compel them to look for improved products
that are friendly to the environment for e.g. car producing companies are
doing their best to create cars that minimizes the pollution of environment.

Generally, marketer should look into all these aspects if there are any
tendencies posing a challenge or creating a chance for the company.

Political and legal Environment: this consists of laws,


governmental agencies and pressure groups. In the first place, countries
will have their own legislation aimed at protecting companies from unfair
competition, protecting consumers from unfair business practices and/or to
protect the societys interest from unbridled business behavior. Hence,
marketers must have a good knowledge of the major laws protecting
competition, consumers and society. Additionally, new framework of laws
might be introduced as it becomes necessary and this newly created may
affect the organizations activity positively or negatively in addition to the
exisiting ones. Apart from all this, the government may have its own
regulations and priorities and the initiation it give may change over time for
different kind of businesses. In addition to this, there might be some
influential groups that are capable enough to influence the legislation body
and the government to introduce new laws or take actions. Hence,
marketers need to look into all this aspects on continous basis to identify
the possible threats being posed on the company or opportunities coming
along with the changes of these factors.

Micro environmental forces: these are factors that are specific


only for the company under consideration. They are not the same for all
companies operating in a given market (economy). For. E.g. the
competitors of a company may be different from another company
engaged in some othe un related business. As well, a companys suppliers
might be differnt from one company to the other. In the same way,
customers (markets) the firm serves might be different in accordance with
the companys business. Generally, all the aspects mentioned above are
things that can change from one company to the other. They are not the
same for all companies like macro factors. As they are external to the
company, still these forces are uncontrollable by a company but are not
that much difficult to influence like macro factors. For e.g. a company may
not control the activity of its competitors but can systematically affect its
activity. Likewise, a company may not exert control over its suppliers but
still may have the bargaining power to influence their activity. Now lets
have a look at the main factors one by one;

1. Suppliers: Suppliers are specific to the company. i.e. suppliers of a company in


one industry are/may be different from the other company engaged in other industry
and even for companies engaged in the same industry, suppliers might be different
from one company to the other. They can affect an organizations activity in so many
ways. For e.g. if the supplier can not deliver the materials on timely basis, it will be
difficult for the company to deliver the product for customers in areas where they
are in need of on timely basis. In the same way, if suppliers fail to meet quality
requirments, it will be difficult for the company to come up with supperior quality
products. Likewise, if suppliers increase the price of the materials they are
delivering, it may enforce the company to raise prices of its final products etc. In
return a company may have some bargaining power to affect suppliers activity. E.g.
a company may inforce suppliers to meet some quality requirment, may inforce
them to decrease price etc. Hence, it is of paramount importance to contenously
monitor the activities of suppliers in terms of their their materials quality,
dependability, etc. This is so because if a supplier stops delivering abruptly, it may
threat the companys business. In the same way, if the number of suppliers go on
raising, it can be considered as opportunity for the company as it will make getting
in puts less difficult.
2. Marketing intermediaries: these are all those parties that are involved in
delivering the companys products to the market from where they are produced and
that are involved in the exchange process with the companys target market in one
way or another such as retailers, physical distribution companies (transportation and
warehousing companies), marketing service companies such as advertising
companies, marketing research companies etc and financial intermediaries such as
banks and insurances. Obviously, in one way or another, these may have posetive
and/or negative impact on a company. So, its so important to follow up any changes
in such an atomspher so that the company can prepare the things it may encounter
in advance.
3. Competitors: A companys competitive environment is a major influence on its
marketing activities. A company is rarely stands alone in its effert to serve a given
customer market. There will always be a host of competitors. Hence, a company
should identify, monitor and outmaneuvered to capture and maintain customer
loyality. A comapny generally face three types of competition;
Brand competition: comes from marketers of directly similar products e.g.
coca and pepsi.
Substitute products: products from other categories but can substitute the
companys products e.g. video producing companies and theaters compete for
entertainment need (recreational need). May be Jucies, Ambo weha, Highland
spring, Coca etc appeal for satisfying the same need refreshment drink.
In the third, more general type of competition, every company is a rival as all
strive to get the limited buying power of buyers.
4. Customers: Customers companies targetting might be different from one
company to the other even in one industry and if the industry with in which the
companies are operating is different, obviously their direct customers will also be
different. And, as we said it in market oriented approach, the justification for an
organizations existence is the decision of customers to purchase. Hence, every
activity of the organization should revolve arround the needs and specification of
customers in todays competitive environment. As we all know, in todays world it
sometimes seems that change is the only constant thing. Hence, what customers
are interested today may be outdated by tomorrow. Thus, companies should keep on
improving themselves with the changing environment of their customers. That
means if the interest of customers starts to shift, in the same way the company
should adjust it self in accordance with that change. To this end, it is compulsary for
companies to continously scan their customers and adjust themselves accordingly.


CHAPTER THREE
BUYING BEHAVIOR

3.1. Consumer buying behavior

Consumer buying behavior means the behavior consumers exhibit when


searching for information about product to buy, evaluate one brand against
another, and when they are using and exposing the product after using it.
In addition to a companys marketing mix and factors present in the external
environment, a buyer is also influenced by personal characteristics and the
process by which he/she makes decisions. A buyers cultural characteristics,
including values, perceptions, preferences, and behavior learned through
family or other key institutions, is the most fundamental determinant of a
persons wants and behavior. Consumer markets and consumer buying
behavior have to be understood before sound marketing plans can be
developed.
The consumer market buys goods and services for personal consumption. It
is the ultimate market in the organization of economic activities. In analyzing
a consumer market, one needs to know the occupants, the objects, and the
buyers objectives, organization, operations, occasions and outlets.
The buyers behavior is influenced by four major factors: cultural (culture,
subculture, and social class), social (reference groups, family, and roles and
statuses), personal (age and life cycle state, occupation, economic
circumstances, lifestyle, and personality and self-concept), and psychological
(motivation, perception, learning, and beliefs and attitudes). All of these
provide clues as to how to reach and serve buyers more effectively.
Before planning its marketing, a company needs to identify its target
consumers and their decision processes. Although many buying decisions
involve only one decision maker, some decisions may involve several
participants, who play such roles as initiator, influencer, decider, buyer, and
user. The marketers job is to identify the other buying participants, their
buying criteria, and their influence on the buyer. The marketing program
should be designed to appeal to and reach the other key participants as well
as the buyer.
The amount of buying deliberateness and the number of buying participants
increase with the complexity of the buying situation. Marketers must plan
differently for four types of consumer buying behavior: complex buying
behavior, dissonance-reducing buying behavior, habitual buying behavior,
and variety-seeking buying behavior. These four types are based on whether
the consumer has high or low involvement in the purchase and whether
there are many or few significant differences among the brands.
In complex buying behavior, the buyer goes through a decision process
consisting of need recognition, information search, evaluation of alternatives,
purchase decision, and post purchase behavior. The marketers job is to
understand and develop an effective and efficient program for the target
market.

3.1.1. The buyers decision process

The final consumers decision process is the way in which people gather and
assess information and make choices among alternative goods, services,
organizations, people, places, and ideas. It consists of the process itself and
factors affecting the process.
The decision process consists of five basic stages (the next six sections).
Factors affecting the process are a consumers demographic, social, and
psychological characteristics. Sometimes, all six stages in the process are
used; other times, only a few steps are utilized. At any point in the process, it
may be ended.

1. Need recognition: normally any purchase decision begins with the


recognition of needs or problem. The need may be triggered by internal stimuli
such as hunger, thirst or sex. For e.g. before thinking about purchasing
something to eat a person first should be hungered. It may also be triggered
by external stimuli for e.g. a person passes a restaurant and smell nice food
that stimulates his hunger. In this case, the stimuli are external. At this stage,
the marketer should research consumers to find out what kinds of needs or
problems are associated with the product, what factors brought them about,
and how they led the consumer to this particular product. Then they can
develop marketing strategies that that trigger consumers interest.
2. Information Search: Information search involves listing alternatives that will
solve the problem at hand and a determination of the characteristics of each.
Search can be internal and/or external. As risk increases; the amount of
information sought also increases. Once the information search is completed, it
must be determined whether the shortage or unfulfilled desire can be satisfied
by any alternative. The internet has become a major source for consumer
shopping information.
3. Evaluation of Alternatives: The alternatives are evaluated on the basis of the
consumers criteria and the relative importance of these criteria. They are then
ranked and a choice made. Generally, marketers should study buyers to find out
how they actually evaluate brand alternatives. If they know what evaluative
process go on, marketers can take steps to influence the buyers decision.
4. Purchase Decision: The purchase act involves the exchange of money or a
promise to pay for a product, or support in return of ownership of a specific
goods, the performance of a specific and so on. Purchase decisions remaining
at this stage center on
The place of purchase
Terms
Availability

If the above elements are acceptable, a consumer will make a purchase.

5. Post-purchase Behavior: Frequently, the consumer engages in post-


purchase behavior. Buying one item may lead to the purchase of another. Re-
evaluation of the purchase occurs when the consumer rates the alternative
selected against performances standards. Cognitive dissonance, doubt that a
correct purchase decision has been made, can be reduced by follow-up calls,
extended warranties, and post-purchase advertisement.

3.1.2. Major factors influencing buying behavior

- Demographic, social, and psychological factors affect consumer decision-


making
- By understanding how these factors affect decision making, a firm can fine-
tune its strategies to cater to the target market.

There are various factors affecting consumers buying behavior. These


include:

1. Cultural Factors:

Cultural factors a significant impact on customer behavior. Culture is the


most basic cause of a persons wants and behavior. Growing up, children
learn basic values, perception and wants from the family and other
important groups. Marketers are always trying to spot cultural shifts which
might point to new products that might be wanted by customers or to
increased demand. For example, the cultural shift towards greater concern
about health and fitness has created opportunities (and now industries)
servicing customers who wish to buy:

Low calorie foods


Health club memberships
Exercise equipment
Activity or health-related holidays etc.

Similarly the increased desire for leisure time has resulted in increased
demand for convenience products and services such as microwave ovens,
ready meals and direct marketing service businesses such as telephone
banking and insurance.
Each culture contains subcultures groups of people with share values.
Sub-cultures can include nationalities, religions, racial groups, or groups of
people sharing the same geographical location. Sometimes a subculture will
create a substantial and distinctive market segment of its won. For example,
the youth culture or club culture has quite distinct values and buying
characteristics from the much older gray generation.
Similarly, differences in social class can create customer groups. In fact, the
official six social classes in the UK are widely used to profile and predict
different customer behavior. In the UKs socioeconomic classification
scheme, social class is not just determined by income. It is measured as a
combination of occupation, income, education, wealth and other variables.

2. Social Factors:

A customers buying behavior is also influenced by social factors, such as the


groups to which the customer belongs and social status. In a group, several
individuals may interact to influence the purchase decision. The typical roles
in such a group decision can be summarized as follows:
Reference Groups:- As a consumer, your decision to purchase and use
certain products and services, is influenced not only by psychological
factors, your personality and life-style, but also by the people around you
with whom you interact and the various social groups to which you belong.
The groups with whom you interact directly or indirectly influence your
purchase decisions and thus their study is of great importance to the
marketer.
Family: The family, as a unit, is an important of all these groups and we
shall discuss it in detail. The family is an important consumer for many
products which are purchased for consumption by all family members. It is a
source of major influence on the individual members buying behavior. We
can identify two families which shape an individuals consumption behavior.
One is the family of orientation that is the family in which you are born and
consists of your parents, brothers and sisters. It is from parents that we
imbibe most of our values, attitudes, beliefs and purchase behavior patterns.
Long after an individual has ceased to live with his parents, their influence of
the sub-conscious mind still continues to be great. In our country, where
children continue to live with parents even after attain adulthood, the latters
influence is extremely important. The other kind of family is family of
procreation (namely one's spouse and children), which has a more direct
influence on specific purchase decision.

Roles: An individual may participate in many groups. His position within
each group can be defined in terms of the activities he is expected to
perform. You are probably a manager, and when in your work situation you
play that role. However, at home you play the role of spouse and parent.
Thus in different social positions you play different roles. Each of these roles
influences your purchase decisions.
Status: Status is often measured by the degree of influence an individual
exerts in the behavior and attitude of others. People buy and use products
that reflect their status. The managing director of a company may drive a
Mercedes to communicate his status in society.

3. Personal Factors:

Age and life cycle stage: Like the social class the human life cycle can
have a significant impact on consumer behavior. The life cycle is an orderly
series of stages in which consumer attitude and behavioral tendencies
evolve and occur because of developing maturity, experiences, income, and
status. Marketers often define their target market in terms of the consumers
present lifecycle stage. The concept of lifecycle as applied to marketing will
be discussed in more details.
Occupation and Income: Today people are very concerned about their
image and the status in the society, which is a direct outcome of their
material prosperity. The profession or the occupation a person is in again has
an impact on the products they consume. The status of a person is projected
through various symbols like the dress, accessories and possessions.
Life Style: Our life styles are reflected in our personalities and self-
concepts, same is the case with any consumer. We need to know what a life-
style is made of. It is a persons mode of living as identified by his or her
activities, interest and opinions. There is a method of measuring a
consumers lifestyle. This method is called as the psychographics-which is
the analysis technique used to measure consumer lifestyles-people
activities, interest and opinions. Then based upon the combinations of these
dimensions, consumers are classified. Unlike personality typologies, which
are difficult to describe measure lifestyle analysis has proven valuable in
segmenting and targeting consumers according to their lifestyle
classification.
Personality: Personality is the sum total of an individuals enduring internal
psychological traits that make him or her unique. Self-confidence,
dominance, autonomy, sociability, defensiveness, adaptability, and
emotional stability are selected personality traits. People who have self-
confidence have different purchasing behavior than people who have no self-
confidence.

4. Psychological Factors:

Motivation: Motivation involves the positive or negative needs, goals, and


desires that impel a person to or away from certain actions. By appealing to
motives (reasons for behavior), a marketer can generate motivation.
Economic and emotional motives are possible. Each person has distinct
motives for purchases; these change by situation and over time.
Consumer Needs and Motivations: We all have needs we consume
different goods and services with the expectation that they will help fulfill
these needs. When a need is sufficiently pressing, it directs the person to
seek its satisfaction. It is known as motive. All our needs can be classified
into two categories primary and secondary. Primary needs or motives are
the physiological needs, which we are born with, such as the need for air,
water, food, clothing, shelter and sex. The secondary needs are our acquired
needs, which we have developed in response to the individuals
psychological make-up and his relationship with other members of the
society.
The secondary needs many include the need for power, prestige, esteem,
affection, learning, status etc. clothing is a primary need for all of us. But the
need for three piece tweed suit, or bananas brocade sari or silk kimonos are
expressions of our acquired needs. The man wearing a three-piece tweed
suit may be seeking to fulfill his status need or his ego need by impressing
his friends and family.
All human needs can be classified in to five hierarchical categories and this
hierarchy is universally applicable. The theory of hierarchy of needs can be
ranked in order of importance from the low biological needs to the higher
level psychological needs. Each level of need is fulfilled, people keep moving
on the next higher level of need.

3.2. Organizational buying behavior


Business market is the collection of buyers who are buying products and
services for resale purpose, or for using it in day to day operation or to use it
to make another product. Let us see the difference between consumer
market and business market.

3.2.1. Characteristics of business market


a. Organizational consumers purchase capital equipment, raw materials, semi-
finished goods, and other products for use in further production or
operations or for resale to others, whereas final consumers usually acquire
the finished items for personal, family, or household use.
b. Organizational consumers are likely to require exact product specifications.
Final consumers more often buy on the basis of description, style, and color.
c. Organizational consumers often use multiple-buying responsibility, in which
two or more employees formally participate in complex or expensive
purchase decisions. Final consumers employ it less frequently and less
formally.
d. Organizational consumers more frequently employ competitive bidding and
negotiation.

3.2.2. Organizational Buying situations


There are three major types of buying situations. At one extreme is the
straight re-buy, which is a fairly routine decision. At the other extreme is the
new task, which may call for thorough research. In the middle is the modified
re-buy, which requires some research.

In a straight re-buy, the buyer reorders something without any


modifications. It is usually handled on a routine basis by the purchasing
department. Based past buying satisfaction, the buyer simply chooses. They
often propose automatic reordering systems so that the purchasing agent
will save reordering time. Out suppliers try to offer something new or
exploit dissatisfaction so that the buyer will consider them.

In a modified re-buy, the buyer wants to modify product specifications,


prices, terms, or suppliers. The modified re-buy usually involves more
decision participants than does the straight re-buy. The in suppliers may
become nervous and feel pressured to put their best foot forward to protect
an account. Out suppliers may see the modified re-buy situation as an
opportunity to make a better offer and gain new business.

A company buying a product or service for the first time faces a new-task
situation. In such cases, the greater the cost or risk, the larger the number of
decision participants and the greater their efforts to collect information will
be. The new -task situation is the marketers greatest opportunity and
challenge. The marketer not only tires to reach as many key buying
influences as possible but also provides help and information.

The buyer makes the fewest decisions in the straight re-buy and the most in
the new-task decision. In the new-task situation, the buyer must decide on
product specifications, suppliers, price limits, payment terms, order
quantities, delivery times, and service terms. The order of these decision
varies with each situation, and different decision participants influence each
choice.

Many business buyers prefer to buy a packaged solution to a problem from a


single seller. Instead of buying and putting all the components together, the
buyer may ask sellers to supply the components and assemble the package
or system. The sale often goes to the firm that provides the most complete
system meeting the customers needs. Thus, systems selling are often a
key business marketing strategy for winning and holding accounts.

Sellers increasingly have recognized that buyers like this method and have
adopted systems selling as a marketing too. Systems selling are a two-step
process. First, the supplier sells a group of interlocking products. For
example, the supplier sells not only glue, but also applicators and dryers.
Second, the supplier sells a system of production, inventory control,
distribution, and other services to meet the buyers need for a smooth-
running operation.

Systems selling are a key business marketing strategy for winning and
holding accounts. The contract often goes to the firm that provides the most
complete solution to the customers needs. For example, the Indonesian
government requested bids to build a cement factory near Jakarta. An
American firms proposal included choosing the site, designing the cement
factory, hiring the construction crews, assembling the materials and
equipment, and turning the finished factory over to the Indonesian
government. A Japanese firms proposal included all of these services, plus
hiring and training workers to run the factory, exporting the cement through
their trading companies, and using the cement to build some needed roads
and new office buildings in Jakarta. Although the Japanese firms proposal
cost more, it won the contract. Clearly, the Japanese viewed the problem not
as just building a cement factory (the narrow view of systems selling) but or
running it in a way that would contribute to the countrys economy. They
took the broadest view of the customers needs. This is true systems selling.
3.2.3. Decision making process in organizational buying

Figure 6.3 lists the eight stages of the business buying process. Buyers who
face a new-task buying situation usually go through all stages of the buying
process. Buyers making modified or straight re-buys may skip some of the
stages. We will examine these steps for the typical new-task buying
situation.


Problem recognition
General need description
Product Specification
Supplier search

Supplier selection Performance review


Order-routine specification
Proposal solicitation

Problem Recognition

The buying process beings when someone in the company recognizes a


problem or need that can be met by acquiring a specific product or service.
Problem recognition can result from internal or external stimuli. Internally,
the company may decide to launch a new product that requires new
production equipment and materials. Or a machine may break down and
need new parts. Perhaps a purchasing manager is unhappy with a current
suppliers product quality, service, or prices. Externally, the buyer may get
some new ideas at a trade show, see an ad, or receive a call from a
salesperson who offers a better product or a lower price. In fact, in their
advertising, business marketers often alert customers to potential problems
and then show how their products provide solutions.

General Need Description

Having recognized a need, the buyer next prepares a general need


description that describes the characteristics and quantity of the needed
item. For standard items, this process presents few problems. For complex
items, however, the buyer may have to work with others engineers, users,
consultants to define the item. The team may want to rank the importance
of reliability, durability, price, and other attributes desired in the item. In this
phase, the alert business marketer can help the buyers define their needs
and provide information about the value of different product characteristics.

Product Specification

The buying organization next develops the items technical product


specifications, often with the help of a value analysis engineering team.
Value analysis is an approach to cost reduction in which components are
studied carefully to determine if they can be redesigned, standardized, or
made by less costly methods of production. The team decides on the best
product characteristics and specifies them accordingly. Sellers, too, can use
value analysis as a tool to help secure a new account. By showing buyers a
better way to make an object, outside sellers can turn straight re-buy
situations into new-task situations that give them a chance to obtain new
business.

Supplier Search

The buyer now conducts a supplier search to find the best vendors. The
buyers can compile a small list of qualified suppliers by reviewing trade
directories, doing a computer search, or phoning other companies for
recommendations. today, more and more companies are turning to the
internet to find suppliers. For marketers, this has leveled the playing field
the Internet gives smaller suppliers many of the same advantages as larger
competitors.

The newer the buying task, and the more complex and costly the item, the
greater the amount of time the buyer will spend searching for suppliers. The
suppliers task is to get listed in major directories and build a good
reputation in the marketplace. Salespeople should watch for companies in
the process of searching for suppliers and make certain that their firm is
considered.

Proposal Solicitation

In the proposal solicitation stages of the business buying process, the


buyer invites qualified suppliers to submit proposals. In response, some
suppliers will spend only a catalog or a salesperson. However, when the item
is complex or expensive, the buyer will usually require detailed written
proposals or formal presentations from each potential supplier.
Business marketers must be skilled in researching, writing, and presenting
proposals in response to buyer proposal solicitations. Proposals should be
marketing documents, not just technical documents. Presentations should
inspire confidence and should make the marketers company stand out from
the competition.

Supplier Selection

The members of the buying center now review the proposals and select a
supplier or suppliers. During supplier selection, the buying center often
will draw up a list of the desired supplier attributes and their relative
importance. In one survey, purchasing executives listed the following
attributes as most important in influencing the relationship between supplier
and customer; quality products and services, on-time delivery, ethical
corporate behavior, honest communication, and competitive prices. Other
important factors include repair and servicing capabilities, technical aid and
advice, geographic location, performance history, and reputation. The
members of the buying center will rate suppliers against these attributes
and identify the best suppliers.

Buyers may attempt to negotiate with preferred suppliers for better prices
and terms before making the final selections. In the end, they may select a
single supplier or a few suppliers. Many buyers prefer multiple sources of
supplies to avoid being totally dependent on one supplier and to allow
comparisons of prices and performance of several suppliers over time.
Todays supplier developments managers want to develop a full network of
supplier partners that can help the company bring more value to its
customers.

Order-Routine Specification

The buyer now prepares an order-routine specification. It includes the final


order with the chosen supplier or suppliers and lists items such as technical
specifications, quantity needed, expected time of delivery, return policies,
and warranties. In the case of maintenance, repair, and operating items,
buyers may use blanket contracts rather than periodic purchase orders. A
blanket contract creates a long-term relationship in which the supplier
promises to resupply the buyer as needed at agreed prices for a set time
period. A blanket order eliminates the expensive process of renegotiating a
purchase each time that stock is required. It also allows buyers to write
more, but smaller, purchase orders, resulting in lower inventory levels and
carrying costs.

Blanket contracting leads to more single-source buying and buying more


items from that source. This practice locks the supplier in tighter with the
buyer and makes it difficult for other suppliers to break in unless the buyer
becomes dissatisfied with prices or service.

Performance Review

In this stage, the buyer reviews supplier performance. The buyer may
contract users and ask them to rate their satisfaction. The performance
review may lead the buyer to continue, modify, or drop the arrangement.
The sellers job is to monitor the same factors used by the buyer to make
sure that the seller is giving the expected satisfaction.

We have described the stages that typically would occur in a new-task


buying situation. The eight-stage model provides a simple view of the
business buying-decision process. The actual process is usually much more
complex. In the modified re-buy or straight re-buy situation, some of these
stages would be compressed or bypassed. Each organization buys in its own
way, and each buying situation has unique requirements.

Different buying center participants may be involved at different stages of


the process. Although certain buying-process steps usually do occur, buyers
do not always follow them in the same order, and they may add other steps.
Often, buyers will repeat certain stages of the process. Finally, a customer
relationship might involve many different types of purchases ongoing at a
given time, all in different stages of the buying process. The seller must
manage the total customer relationship, not just individual purchases.

3.2.4. Factors influencing organizational buying Decision

Business buyers are subject to many influences when they make their
buying decisions. Some marketers assume that the major influences are
economic. They think buyers will favor the supplier who offers the lowest
price or the best product or the most service. They concentrate on offering
strong economic benefits to buyers. However, business buyers actually
respond to both economic and personal factors. Far from being cold,
calculating, and impersonal, business buyers are human and social as well.
They react to both reason and emotion.
Environmental Factors

Business buyers are influenced heavily by factors in the current and


expected economic environment, such as the level of primary demand, the
economic outlook, and the cost of money. As economic uncertainty rises,
business buyers cut back on new investments and attempt to reduce their
inventories.

An increasingly important environmental factor is shortages in key materials.


Many companies now are more willing to buy and hold larger inventories of
scarce materials to ensure adequate supply. Business buyers also are
affected by technological, political, and competitive developments in the
environment. Culture and customs can strongly influence business buyer
reactions to the marketers behavior and strategies, especially in the
international marketing environment. The business marketer must watch
these factors, determine how they will affect the buyer, and try to turn these
challenges into opportunities.

Organizational Factors
Each buying organization has its own objectives, policies, procedures,
structure, and systems, and the business marketer must understand these
factors well. Questions such as these arise: How many people are involved in
the buying decision? Who are they? What are their evaluative criteria? What
are the companys policies and limits on its buyers?

Interpersonal Factors
The buying center usually includes many participants who influence each
other, so interpersonal factors also influence the business buying process.
However, it is often difficult to assess such interpersonal factors and group
dynamics. Managers do not wear labels that identify them as important or
unimportant buying center participants, and powerful influencers are often
buried behind the scenes. Nor does the highest-ranking buying center
participant always have the most influence. Participants may influence the
buying decision because they control rewards and punishments, are well
liked, have special expertise, or have a special relationship with other
important participants. Interpersonal factors are often very subtle. Whenever
possible, business marketers must try to understand these factors and
design strategies that take them into account.

Individual Factors
Each participant in the business buying-decision process brings in personal
motives, perceptions, and preferences. These individual factors are affected
by personal characteristics such as age, income, education, professional
identification, personality, and attitudes toward risk. Also, buyers have
different buying styles. Some may be technical types who make in-depth
analyses of competitive proposals before choosing a supplier. Other buyers
may be intuitive negotiators who are adept at pitting the sellers against one
another for the best deal.